Display Ad Prices Fell 50 Percent in Q4

The newly released Pubmatic AdPrice Index shows prices for Internet display advertising in the fourth quarter dropped significantly from the same period last year.

The price for advertising on Web sites of all sizes dropped by about 53 percent from Q4 2007 to Q4 2008, according to the index. The numbers also show that every vertical category suffered steep declines, with Business and Finance leading the way at 61 percent.

Rajeev Goel, co-founder and CEO of PubMatic, said that the drop in prices was expected, though the size of the declines came as a surprise.

“We definitely expected to see deterioration of the market in the fourth quarter, but we didn’t expect that it would be more than 50 percent,” he said.

PubMatic, an ad revenue optimization firm based in Palo Alto, CA, launched the AdPrice index in Q4 of 2007, meaning this was the first time it was able to make year-over-year comparisons. The index tracks the price of ad inventory on approximately 5,500 sites, and all prices are for ad space sold through ad networks.

The news was slightly better for the quarter-to-quarter results. Prices across all levels of Web sites were down only slightly from Q3 to Q4, in contrast with more severe drops inprevious quarters.

The average CPM in Q3 of this year was $.27 cents, which declined modestly to $.26 in Q4, according to the index. The average price was $.50 in Q4 2007, $.37 in Q1 of this year and $.34 in Q2.

Part of that leveling off, however, could be attributed to additional spending on holiday advertising, said Goel, meaning that the holiday ad rush likely just counteracted what would otherwise have been a severe drop.

“We would normally see a trend up in Q4 because of the holiday season and advertisers trying to end the year on a good note,” he said. “Instead pricing was basically flat, meaning the holiday effect only masked further deterioration in the market.”

Despite the steep year over year drop in vertical display prices, no vertical categories dropped significantly compared with the previous quarter, and some, like Sports, Entertainment and Gaming, actually went up slightly. PubMatic compiles the index through a monthly survey of more than 5,500 Web publishers, which is then analyzed and prepared by a pair of independent analysts.

This story has been updated to make clear that the PubMatic Index tracks prices for inventory sold through ad networks.